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Valuing the Nonprofit Sector

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Over the past few days, the New York Times has offered a telling glimpse into the varied nature of the nonprofit sector and the ways in which it touches our lives -- from day-to-day services to public policy. The Times coverage also offers insight into our shared instinct to preserve a sector that has the agility to help address market or policy failures.

Saturday's paper reminded us that America's increasing numbers of unemployed rely upon nonprofit food banks and other charitable services when their government benefits are exhausted.

Another article reports on one of the most significant developments in nuclear non-proliferation policy -- the establishment of a global nuclear fuel bank -- enabled by a $50-million gift from philanthropist Warren Buffet to the UN's resource-strapped and politically hampered International Atomic Energy Agency. The bank would provide low-enriched uranium to states seeking nuclear power, in exchange for their returning the spent fuel and foregoing the indigenous capacity to produce their own fuel, including that which is weapons grade. Thus, the nuclear fuel bank would control the cycle of nuclear production and its associated dangers.

It is against this backdrop that a debate erupted within the nonprofit sector over proposals to alter the tax treatment of the donations on which it relies. The Times covered that as well, treating it as more than an industry's special pleading. The debate's starting point is that deficit reduction will require the combination of reduced spending and increased revenues. The question is whether tax breaks for charitable gifts are off limits or on.

A range of organizations from think tanks, advocacy and service groups to churches, temples, universities and hospitals have long benefited from the tax write-off their benefactors enjoy. And, in the past decade, there has been an explosion in the creation of new foundations, tax exempt endowments established to advance social causes. The introduction of these new philanthropic players with bold ambitions has created benefits not only for our society, but also for others across the globe.

Our tax code reflects the importance we place on the freedom that these philanthropies and other nonprofits enjoy. Reducing charitable deductions could adversely impact a nonprofit's ability to raise or grant the funds needed to fulfill its mission. The change would occur on the heels of a recession that has already reduced foundation endowments and individual givers' accounts, forcing their grantees to make do with less. Moreover, as national, state and local coffers have shrunk, nonprofits have stretched to make up for the resulting reductions in government services, providing a safety net for America's most vulnerable families.

But the impact on nonprofits of a changed tax treatment is likely to be as varied as the nonprofits themselves -- not to mention the philanthropists that support them. Donors are motivated by a range of factors. Tax relief is among them, but how much is not known. In order to judge whether it is right or wise to ask this sector to sacrifice further, policy makers would need to know the risks and benefits to society as a whole.

While that analysis is undertaken, it would be useful to come to a shared view of the reasons for the favorable tax treatment in the first place. Americans value the sector because it is unconstrained by the need to win elections or generate profits and can therefore take actions and generate ideas that may be unwelcome, unpopular and unprofitable today but produce true societal benefit tomorrow. In the process, they can help identify and tackle truly hard problems.

Among the difficult problems the sector can help us address is the need to get our country on a sustainable course. The deficit dilemma has called into question our leaders' capacity for problem-solving. Elected officials must respond to caricatures of their views repeated in 24 hour news-cycles. Private sector leaders are required to produce shareholder value as measured in quarterly returns. The social sector may be the only one that can afford to ask hard questions, test novel solutions and build consensus from the ground up.

The sector has already contributed by sounding the alarm and offering specific options for financing the obligations we undertake as a country over time. The continued search for solutions will not only test our willingness as a citizenry to share in the sacrifice, but also our ability to think strategically, ask and answer knotty questions, explore novel solutions -- and to imagine. These are the strengths of the nonprofit sector.

While the sector can and will continue to contribute in these ways, informing a larger process, it may also choose to shoulder a greater sacrifice. Whatever choices the sector and the people make, let's never sacrifice the sector's independence from political and market constraints.

We must and they should preserve the sector's freedom to help us solve society's next difficult problem.

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